The alimony deduction has existed for 75 years. Current alimony laws - which vary on a state-by-state basis - are premised on the fact that alimony payments are currently deductible to the payor and includible as income to the recipient. The rationale behind this tax deduction is that, by shifting dollars from a payor (who usually has higher levels of income) to a recipient (who typically has lower levels of income), a more tax-efficient result is obtained. Namely, the money paid/received as alimony is taxed at a recipientís lower rate. This usually means that the parties retain more usable dollars at the expense of the IRS.

The alimony deduction has resulted in some irregularities. Recent reviews by the IRS reflect (https://www.usatoday.com/story/money/taxes/2017/12/24/exes-and-taxes-how-tax-overhaul-would-alter-alimony/976413001/) that 361,000 taxpayers reported paying alimony in 2015 (thereby taking the deduction), while only 178,000 taxpayers reported receiving alimony (where they would be reporting alimony as income and be compelled to pay taxes on it). Those numbers should match each other, but it is likely the lack of resources for policing and enforcement have prevented the IRS from closing that gap.

Despite those irregularities, the decision to get rid of the alimony deduction likely stems from the need to find revenue that offset $5.5 trillion in spending on new tax cuts (the oft-cited $1.5 trillion figure is the difference between the estimated cost of the tax cuts and estimated revenue resulting from tax increases and reforms, i.e. the increased deficit). Although the elimination will certainly result increased revenue for the IRS, the Joint Committee on Taxation, a non-partisan entity, estimated that excising the alimony deduction would only add $6.9 billion in revenue, or less than half a percent of the amount of the tax cut.

This development creates a very significant change in the world of domestic relations, and will cause practitioners, judges, and legislators to reassess and revise the existing laws and structural framework of alimony laws.

In Massachusetts, the baseline to determine the proper amount of alimony can be found in the Alimony Reform Act of 2011, which postulates https://malegislature.gov/Laws/SessionLaws/Acts/2011/Chapter124 that "the amount of alimony should generally not exceed the recipient's need or 30 to 35 percent of the difference between the partiesí gross incomes established at the time of the order being issued.î

Because such percentages are premised on the idea that the deduction is available for alimony payments (in contrast with child support payments, which have no tax effect), those numbers will need to adjusted and the law will have to be revised accordingly. It is difficult to predict where the new percentages will end up, as the ìcorrectî amount of alimony (i.e. an amount that is in line with the amount of dollars that both parties would have ended up with following the deduction/inclusion of alimony as taxable income) would likely depend on the tax brackets and tax rates at issue in each particular case. A revised law, however, is more likely to settle on a uniform approach for simplicityís sake, rather than a tiered one.

Modification of existing agreements may also be at issue. While it does appear that parties who (after January 1, 2019) modify an agreement signed before December 31, 2018, will be ìgrandfathered inî to the tax deduction, other unintended consequences could fall through the cracks and will have to be sorted out by lawyers and judges for years to come.

These are only two potential sources of uncertainty. Given the speed with which this bill was drafted, there will be fallout and other secondary effects that were likely not considered or debated. What this provision does to existing tax and domestic relations laws may just be the tip of the iceberg.

Perhaps the Massachusetts legislature can step in and enact some changes so that every person who is facing a divorce knows and understands the playing field. Unfortunately, passing a new or revised alimony law will take some time. The only certainty is that people who are looking to avail themselves of the tax deduction and operate under the current statutory scheme now have an incentive to finalize their divorces sooner rather than later.